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Nordstrom, Inc. Slowly Tiptoes Into the Home Market

Home furnishings have never been a major focus for Nordstrom, but the upscale retailer is introducing several new brands in 2018.

Adam Levine-Weinberg is a senior Industrials/Consumer Goods specialist with The Motley Fool. He is an avid stock-market watcher and a value investor at heart. He primarily covers airline, auto, retail, and tech stocks. Follow him on Twitter for the latest news and commentary on the airline industry! Follow @AdamLLW

Historically, most high-end department stores didn't show much interest in the home furnishings market. Nordstrom(NYSE:JWN) and competitors such as Saks Fifth Avenue, Neiman Marcus, and Lord & Taylor saw more profit potential in apparel, footwear, and accessories. Macy's(NYSE:M) subsidiary Bloomingdale's was virtually unique among upscale department stores in carrying an extensive collection of furniture and "soft home" items.

However, home furnishings demand is increasing, thanks to the strengthening housing market. Meanwhile, upscale department stores are facing sales and margin pressure in apparel and accessories, as the rise of e-commerce has increased pricing transparency and competition.

As a result, Nordstrom seems to be getting more serious about home furnishings. Just in the first few months of 2018, Nordstrom has made some notable moves to expand its home business.

Bloomingdale's is the upscale home king

A typical Nordstrom store has a very modest home section. For example, in the company's Walnut Creek, California, store (pictured below), the "Nordstrom at Home" section occupies a tiny corner of the third floor. I missed it the first time I walked by! It contains an eclectic -- and small -- collection of goods, including bedding, towels, throw pillows, candles, and kitchen items.

Most Nordstrom stores have very small home sections. Image source: author.

By contrast, Bloomingdale's has a full home department in most of its stores, with up to 65,000 square feet of selling space. It also operates a handful of home- or furniture-only locations, similar to sister chain Macy's.

Bloomingdale's carries a broad assortment of linens, kitchen and dining items, home decor, furniture, and mattresses in its home departments. Its home business is inventory-intensive but highly profitable nonetheless, because of Bloomingdale's clear leadership in this category.

Nordstrom will invest more in its home sections

It's unlikely that Nordstrom will ever try to challenge Bloomingdale's position in high-end home furnishings. That said, the upscale retailer clearly sees opportunities to grow in the home market by expanding and differentiating its offerings.

Last month, Nordstrom announced that its Treasure & Bond private brand -- which donates 2.5% of its sales to charity -- would launch a home collection in 2018. "The home collection will feature a fresh tabletop assortment including ceramic dishware, artisanal cheese boards, and textured glass pieces, as well as bedding, stylish throws, and pillows," according to the company. Pricing will be quite affordable, with items costing $45-$199.

More recently, Nordstrom announced a partnership with specialty retailer Anthropologie. Later this month, 15 Nordstrom stores and Nordstrom.com will begin carrying more than 200 items from Anthropologie Home.

Nordstrom Arden Fair is one of 15 stores that will sell the Anthropologie Home collection. Image source: author.

This collection will cover a similar range of merchandise as the new Treasure & Bond home line, but with more creative and whimsical designs. Importantly, Anthropologie will regularly update its home collection at Nordstrom, which should keep customers interested.

Finally, Nordstrom is adding some star power to its home sections in 2018. Popular designer Tory Burch recently confirmed that Nordstrom will begin selling her home decor collection later this year.

Small steps in the right direction

Nordstrom's sales per square foot in domestic full-line stores fell to $346 in fiscal 2016 from $370 a year earlier. Based on the company's 2017 comp sales performance, full-line sales per square foot probably declined by another 3%-5% last year.

In light of its rapid e-commerce growth, Nordstrom is shifting its focus toward metrics such as sales per customer rather than "traditional" retail metrics such as sales per square foot. Nevertheless, declining store productivity is a real problem for the company, making it harder to cover fixed costs.

An expansion of its home furnishings offerings may help Nordstrom bolster its sales. If the upscale retailer can draw just a few more shoppers into its stores each day and get them to make purchases while they're there, its home buildup would be a big success.